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What is a 26(f) Program?


What is a 26(f) Program?

We have had multiple questions recently about the 26(f) program.  As we have never heard of this program before, we thought it would be a good time to look into them.  Here is a link that describes a 26(f) investment:

We discovered that “26” refers to Title 26 of the Internal Revenue Code and  “F” stands for Subtitle F: “Procedure and Administration” under Title 26.

Here are the claims of one particular 26(f) program:

  1. Enrolling in these programs is as easy as a click of a mouse and filling out a simple application.
  2. These aren’t “retirement plans” run by the government. In fact, anyone over the age of 18 can take advantage of a 26(f) program.
  3. A 26(f) program allows investors to own shares in some of the biggest and safest stocks on the market. And investors also have the opportunity to own a stake in some of the most talked-about private companies before they go public.
  4. 26(f) programs have been used by the wealthy to build huge fortunes.
  5. Legendary investors like Warren Buffett and Sir John Templeton both took advantage of these programs for years. In fact, $1.1 billion of Berkshire Hathaway Inc. is now owned by 26(f) programs.
  6. 26(f) programs allow people to ‘enroll’ with one small investment stake.
  7. You could potentially: 1. Get paid $2,000…$5,000… even more… every month for the rest of your life. 2. Then still grab six figures in one shot. And on top of that, there are 26(f) programs that can operate as 100% legal tax havens.
  8. In one case, a client’s investment pummeled the return from his PNC Bank investment by 1,351% in 6 months!

After doing our own research, we determined that a 26(f) program, in our opinion, is a very loose reference to a mutual fund.  That’s right – a mutual fund.  You are being sold an old and well-known way to invest money.  Go through the claims made above one by one.  Claim number 2 states that they aren’t retirement plans run by the government.  That is true for mutual funds.  You also have to be over 18 to invest in them.  Claim number 4 talks about building “huge fortunes.” Many investors have done that with mutual funds.  Number 5 states that Warren Buffett’s stock BRK is owned by these 26(f) programs.  Sure, mutual funds own and buy BRK all the time.  Finally, number 8 states that one 26(f) program outperformed PNC stock by 1,351% in 6 months!  Well, all that means is that if the PNC stock was up 1.62%, some mutual fund was able to get a return of 23% over that time period.  This is quite a good return over a 6-month period, but it isn’t life-changing and it most likely isn’t sustainable.

In conclusion, a 26(f) program isn’t something new or groundbreaking.  It is an investment dressed up with some vague descriptions of success.  Remember, if it sounds too good to be true, it usually is!

Written by

Jimmy Stechschulte, CFA®

As a member of the Investment Committee, he performs investment research on both equity and fixed income products to help construct diversified portfolios for clients. Jimmy also meets with and assists clients with financial and retirement planning needs, estate planning, and tax planning issues.

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